U.S. corporations continue to build up their record-setting cash pile, says Moody’s Investors Service in a new report.
The rating agency reports that the non-financial companies that it rates held US$1.45 trillion in cash at the end of 2012, up 10% from the record level of US$1.32 trillion at the end of 2011. The four industries that lead the way (technology, healthcare/pharmaceuticals, energy and consumer products) have US$990 billion in cash, or 68% of the total.
Moody’s estimates that US$840 billion, or 58% of the total cash, is held overseas; up from 53% at the end of 2011. “The amount overseas reflects the relative strength of most emerging market economies over the last few years, the negative tax consequences of permanently repatriating money to the US, and the domestic use of cash for dividends, share buybacks, and the majority of acquisitions,” says Richard Lane, the Moody’s senior vice president.
In general, Moody’s views the liquidity and operating flexibility provided by high cash balances as positive credit factors. It helps ensure companies can retire maturing debt if capital markets are disrupted, and that they can withstand significant deterioration in their business conditions, it says.
“At the same time, large cash balances can be qualitatively negative,” says Lane. “They can encourage management to deploy cash in ways that heighten business or financial risk, such as making expensive acquisitions within or outside of a company’s core strategy.”
The top five firms (Apple, Microsoft, Google, Pfizer, and Cisco) have US$347 billion or 24% of the total corporate cash balances, up from 21% for the top five in 2011, Moody’s reports. Apple has the most cash at US$137 billion, and accounted for a quarter of the increase. Moody’s estimates that if it continues to follow its current policies Apple is on track to have about US$170 billion, or 11% of total corporate cash, by the end of the year.